tv [untitled] April 26, 2012 12:00am-12:30am PDT
>> beckham to the land use committee board of supervisors. -- welcome to the land use committee board of supervisors. supervisor wiener: captioned by the national captioning institute --www.ncicap.org-- supervisor mar: miss miller, can you please give us our announcements? >> please silence all cell phones. documents to be submitted as part of the clock -- the file should be submitted to the clerk. these items will be acted upon. supervisor mar: we have five items on the agenda today. i will just move forward by calling for the first item. >> item number one. hearing on the impact of fees deferral program on affordable housing in san francisco.
supervisor mar: we have actually deferred this item a couple of times. i appreciate the patience of staff. the development impact fee deferment program, it is really important that we're looking at this important hearing to help us to understand the implications of the deferment of the fees pursuant to the city's programs. the program has been operating since july of 2010 and is scheduled to sunset within one year of july, 2013. the primary goal, from those who supported it and promoted it at the board of supervisors, was to stimulate economic development in the face of a lingering economic downturn, to release sparked some development projects that were the stock for a while. but, a number of community
residents and affordable housing groups raised concerns over the need for infrastructure to keep continuing, but also the development of below market rate housing on site, but also the building of more moderate, below market rate units. according to the comptroller's office, 2010, 2011, development fee impact report, developers deferred a total of $14.7 billion in payment. about $15 million deferred, with a total of only 1.4 million or 1.5 million views as paid, rather than deferred. -- if used as paid, rather than deferred. in the office of management pipeline, the program may provide instead of for developers to pay the fees below
market rate units into their projects. given the drastic shortfall in income, i would like to know from others as well if there are other adverse impacts related, such as impact development. a number of people have committed kate -- communicated curiosity to our office in terms of efficacy of construction in of like to understand if there is an ongoing need to continue the fee deferral differences as brought up in the reports. lastly, we have some great presentations from pamela in the department of building inspection. also, michael, for the office of economic work force development. there will be a number of community speakers speaking afterwards. actually, i do them know what order you want. michael is first. thank you. >> good afternoon, supervisors.
thank you for hosting this important round of hearings. i will start with a brief introduction, then pamela will speak to how the development fee collection unit works today. then, i will pick it up and go through a summary of the key data points and policy issues related to the fee deferral program. finally, the director from the office of housing will conclude the presentation, which is our plan order. to reiterate, supervisor, thank you for reminding everyone the original goals of the program. the original goals of the program were to stimulate private investment, create jobs, increase housing production by producing a fish and carrying costs associated with the impact fee collection
process. i will get back to talk about those costs and why they might be deemed inefficient. the second goal was to consolidate the effective enforcement. the deferral program was a component of a much larger part of the building code that has resulted in a much cleaner in easier one-stop process for paying fees. another goal was to increase the legal and accounting services of the fees that we do collect. i will go into greater detail in the second half of my presentation on that point. this ordinance became effective on july 1, 2010, sun setting, naturally, july 1, 2013. that is the deferral program set to sunset on july 1, 2013,
unless the board asks to extend the program beyond that date. with that, i will pass the podium to pamela lebron -- levin. >> pamela levin, director the -- deputy director of building of the suspect in -- building of this inspection. basically, i am the unit, along with one other person. we are tasked to receive and organize information from various city agencies, economic development fees that are owed or development impacts. we receive all the information, accumulating debt, working with project sponsors and other agencies resolving disputes and questions often raised by the project sponsor when they get
their first report. we published an updated, city- wide development fee register located on the website. we are responsible to ensure that the first construction document that either the full impact fee is paid or the project sponsor decides to defer the impact fee. we will talk a little bit more about that as i talk about the deferral program. any outstanding impact fee requirements are satisfied prior to issuance of certificate of occupancy. the first certificate of occupancy. we generate project development fee reports for each of the projects that clarify what was owed and required available for the public so that they can offer to the sponsors that we know exactly what they owe and when they owe it and what it is
for. we process any impact fee refunds and we would initiate lean proceedings to collect unpaid impact fees or in late fees. -- in late -- in lay fees. in terms of the deferral program, project sponsors can defer any impact fees collected by the unit prior to the first construction document -- sorry, s -- sorry, prior to the first certificate of occupancy. meaning that if the project sponsor can come in and buy for their fees, it would be effective for all, except the puc and school fees, we do not have jurisdiction over those. you can defer 20% or 15%, the
down payment that you are doing in order to defer would be either 20% or 15% depending upon where the project is located. we charge a moderate fee surcharge to the final amount that is due. the surcharge is calculated based on 60% of the city's treasury yields on the city's treasury cost inflation estimates, which is focused on the city capital planning group. we revise it every month. i will turn it back over to michael young.
>> that is a summary of how the deferral option works. now we will include the summit on housing policy. as i am sure the you know, there are four options under the city's housing ordinance. the first option, on-site, allows developers to elect to build units below market rate within the same project or host project. the offside option allows developers to build up to 20% of their total project units of site within a mile of their host projects. the third option is the fee option that allows developers to pay a fee instead of building on site or offside units. calculated on the cost to build approximately around 20% of the
host project units. the fourth option is whereby a developer equivalent to the value of the inclusion area requirement. those are the four options. >> i have a quick question. out of the four, which is most popular? >> i am about to get to that slide. there is increasing excitement. hold on. [laughter] humor always helps with inclusion in housing. this data is from fiscal year 2002 to 2003. that was the year that this
program came into affect. approximately 80% to 79% of all projects have been on site since that time. 4% of projects have on our side. 17% have paid a fee instead of providing off site or on site. as a total of the gimmicks, offside has provided significant percentage. 59% have been on site units. 15% of the total capacity have been through fees. i think that very large projects done offsite our projects that have higher unit numbers. approximately $49 million in affordable housing and inclusion have been collected
since the inception. supervisor cohen: when we are looking at the offsite projects, 26%, can you give me a general idea of what part of the city they have been built in? >> i cannot. >> icahn. we have a couple of projects in the bay view. one is in the tenderloin. one is in mission square. one of them is on market street. another one is on market street. so, different parts of town. it sounds like the eastern side of the city. supervisor cohen: thank you. supervisor mar: with a larger project, the reason why they might have offside is become home -- is because homeowner fees, below market rate, folks
might have a harder time of sight rather than on site. >> that is a very good question. it is not a good idea to be on- site in this millennium because you might have ihl late fees and they might be aware of that. they can go up beyond inflation. also, i think that the construction costs are lower. you might want to ask them directly, but my sense is that this works for them. >> the next slide moves into the history of the deferral program. the mayor's office has identified four projects on the slide here. four projects that have used the deferral. projects that are not doing on-
site or off site. projects that are paying a fee. those projects accumulate approximately $7.5 million in fees that have been deferred of that total $8.8 million. about $1.3 million have been deposited into those accounts -- deposited into those accounts as down payments that were alerted to earlier. i should note that the first project was submitted in may of 2011, so not that long ago. the next slide shows three projects in the pipeline, very close to one of these projects that is close to construction. bees are projects, having noted that they intended to do a fee deferral, all of these projects
are proposing to pay the fee instead of doing on-site or offside. fremont street, 45 lansing street, they are all high-rise with domestic construction types, so it is no surprise to those of us to follow this that they are all choosing to pay the fee. these are quite sizable. the next slide are two of the mayor's office of housing project -- sponsored projects. these other projects that are most likely delayed due to the fee deferral program. looking at the projects on the left of each of these pro -- columns, from the left, you will
see that they often have funding needs of $16 million. the current amount of fees, presumably one of them would have been able to be funded by now. so, that shows you a direct example of how the deferral has affected the speed of the affordable housing pipeline. that is over the last year. this slide is a slide that our office put together based on the comptroller's report, which i think all supervisors received. the fee reform legislation is required to do an annual report to the board. what you will see here is the affordable housing sub total, the column, noting the fees that have been deferred, smaller than the 7.5 million irish showing
you. this report is already many months old. it is important to know that the deferral impact at this point is about $11.3 million. in the infrastructure area is $11.3 million. this next slide is important to look at. this traces all of the affordable housing fee revenue collected for use by the mayor's office of housing for affordable housing projects over the last decade. the key to look at here is that all of this funding is cyclical by nature and that when there is a big economic boom, more projects can be funded. when the market rate housing is doing well, commensurate housing does well.
2008, 2009, 2010, everyone understands that that was the economic crashed in housing finance. it is worth noting that those lines of a love the zero-. the reason is that several of those projects requested refunds of their inclusion very fees. this slide here shows you those projects. totaling $23 million, the reason that this happened is that under the old collection system the city required that those be collected early in the process. no construction occurs at site permit issuance. it is quite advanced in the development process. what happened to these projects if they paid the fees in in the interim the fundamentals of the economy went south and under
their legal rights, they've requested a refund. thankfully, there was enough money in the reserve to be able to pay those bills. the concern that we have all had for the reform that we have proposed is that when we collect money it is truly money that we can use to increase the certainty of the city's funding for both affordable housing and infrastructure. supervisor mar: so, these four projects are between march and july over the august. have there been any other examples since that time? >> not to my knowledge. i do not think that there have been. hopefully, we will now see that happen again. this next slide, that is the story of the day that the day. now we are talking more about
the policy fundamentals of why we proposed the deferral. the simple slide summarizes it well. march, 2012, the surcharge rate for deferrals is to point to 7%. by comparison, the average pre- development equity rate, with that same money on the front end, is 20% to 22%. obviously, there is a huge difference in those rates. that is the savings we were attempting to capture and preserve. i should emphasize that that money is not paid to the city, but rather usually equity investors, like banks, and it is a fairly steep price to pay. this slide actually shows -- we did a kind of hypothetical project that showed the caring
cost savings attributable to a deferral program. the novi deferral project is on your left. the one with the deferral is on your right. if you look at the top part of the bar, that is the total caring process involved with paying the fees early as opposed to monitor. the second one is dark blue. the total fecal -- the total fees collected is actually larger under the feed deferral. if you look at that carefully, the dark blue and light blue bars on the right are actually more than the pale blue bar on the left. that is because less interesting is being paid to a private equity investor.
2.27% interest is being paid to the city. the total cost of the whole project is less. a really important point. quack's is it similar for smaller projects, but also larger ones, -- supervisor mar: is a similar for smaller projects, but also the larger ones across the board? >> sometimes smaller projects are worse, because they cannot find the equity or the cash to get through the door. by what -- they wind up holding off their permits and the cost of the equity, as they cannot find it. i would call it a smaller neighborhood scale project. but the same principle applies. the concern that has been raised
on a legitimate concern, discussed at length when brought before this commission two years ago was the issue of on-site housing and what i call the tipping point. the concern is that as we lower the carrying cost of paying the fees, the fees become more attractive. they become a more attractive option compared to building on- site housing. this chart on the bottom summarizes a study prepared by the owd, a hypothetical project where instead of paying a fee they build on side inflationary. the product that you are building, the more likely you're able to sell it at highs -- high costs per square foot, the more likely will decide you would
rather pay the fee then bill the on site. the reason is the lost opportunity of that market rate as the value of the unit does not. we anticipate or estimate that the deferral on the margins may have sales rate that is a very delicate science, not very precise, i should say, so this is a theoretical model that suggests that on the margins some projects might decide to pay a fee on site if there are cost savings. and then one more chart that i think is really worth looking at. we have heard a lot about people's concern over how this affects the timing of infrastructure and for more
housing. this chart is an abstract representation of the impact fee residence. at the end of the day, all that the deferral does is shift the revenue curve out by two years, give or take. why? at the old system we elected at the beginning of the permit process with a new system that had developers with an option. the majority of their fees was that the first surge of a can of occupancy. that is exactly what this program does. it does not diminish the revet major revenue, it increases the revenue. all of the projects that would otherwise be funded in the old system will be done under the new one. it is simply a cash flow challenge. once we are through there, there should not be any planning
issues. we are in the middle of that part right now. if you look at that-to line up that i've put up there, that is where we are right now. -- dashed line i have put up there, that is where we are right now. the fall plan in place, money being collected later, if you think about it we are sort of in between those curves. key policy issues, we know that they reduce the impact of fees and costs of new development in san francisco, money otherwise paid to private equity investors. we know that it helps to reduce cash flow problems for developers.
people who cannot find upfront equity. they may have built evidence so far of that happening, but as i just demonstrated, we know that the causes create a short-term lag in which agencies that impact -- will lie in the fee revenues can impact challenges. >> traditionally, they have a lot of projects they are used to funding as soon as possible and, they may not had the head on the adverse impact. handing off for the conclusion and director, thank you. >> ultimately, the director of the mayor's office has final say. you have a lot of information from